Interesting read. I don't know about anybody else, but I could NOT read this kind of stuff before. I avoided it at all costs....I'm a news junkie, but if a Financial Report came on I would turn the chanel....and I know why, because my own finances were such a mess I just didnt' want to hear anything about money or financial managment....but now I find it......interesting...who'd a thunk?
Funny Story - other day I'm on the couch watching a live broadcast of some state office here doing a hearing on Sub-prime borrowers & Pedatory sub-prime lenders...different experts were speaking...a couple of them were pretty knowledgable------my 21 y.o. old walks in, plops down on the couch next to me and asks "what are you watching?" - - I tell him, he glances at the tv for a few seconds (there happened to be a very nerdy nasal voiced but Extremely Knowledgeable little guy speaking), then turns his head back to me and just stares....I knew he was looking at me but I wouldn't look at him....Finally he says, "Are you really watching this?" I had to laugh. I guess you had to be there, but it was kinda funny...if you have teenagers you'll understand...(I'm also easily amused)
In terms of fiscal policy, America is like a train headed for a bridge that is out, throttle wide open, while engineers fuss over minor adjustments to valves here and there and conductors try and reassure the passengers that nothing is amiss. The media are like the band that kept playing cheery music as the Titanic went down.
This country's financial system is going over the cliff, on that there can be no doubt. There are too many interwoven trends, all clearly unsustainable. It's just a question of what exact admixture of the subprime bubble, the federal debt, private debt, the dollar crash, derivatives and oil production declines crash the American economy, and whether the timetable is measured in many months, several years, or a decade or so.
I don't think it will be a train wreck. Here's why:
The mortgage lenders have overtightened, reducing their risk on new loans to even less than it ought to be. This will further supress the real estate market for maybe a year longer. As foreclosures rise, there will be a stopping point - not everyone is going to lose their homes, and they have almost peaked. A mini-peak may occur in about two years, but I think the worst of the foreclosures will occur before the end of 2007.
What will this do? Lower real estate prices. More affordability, and lower rates due to a slowing market and economy...along with lenders SLIGHTLY loosening subprime guidelines again - nothing like they were, but slightly moreso than now...and guess what? Sales pick up again.
Bottom line is, everything is cyclical. It's economics.